<PAGE> 1
OHIO TAX-FREE
INCOME FUND
GRADISON
SEMIANNUAL REPORT
DECEMBER 31, 1996
GRADISON
This material is intended for distribution to shareholders of the
Gradison Ohio Tax-Free Income Fund. It may be distributed to other
persons only if it is preceded or accompanied by a current prospectus
of the Gradison Ohio Tax-Free Income Fund.
McDonald & Company Securities, Inc.--Distributor
A MUNICIPAL BOND FUND WITH DOUBLE
TAX-FREE BENEFITS TO OHIO INVESTORS
<PAGE> 2
GRADISON
OHIO TAX-FREE INCOME FUND
LETTER TO SHAREHOLDERS
January 31, 1997 Dear Shareholder:
I am pleased to report that the Gradison Ohio Tax-Free Income Fund finished the
year ended December 31, 1996 with the second highest one year total return of
all 56 Ohio tax-free funds according to Lipper Analytical Services. The Fund's
performance was attributable mainly to management's decision to lessen its
exposure in health care bonds while increasing its exposure to general
obligation bonds.
Going forward, municipal market watchers will most likely focus on the economy,
the budget deficit, and currency exchange rates. Economic strength will be
monitored as a barometer of inflation which might develop from tight labor
markets. The budget deficit, which has narrowed in recent years, remains a
constant source of concern particularly in light of the need to slow the growth
of entitlements. Currency exchange rates have grown in importance as foreign
governments purchased the bulk of U.S. Treasury debt issued in 1996.
Fortunately, most economists believe the low inflation, steady growth economy we
are experiencing will continue and, therefore, interest rates should move in a
very narrow range. Whatever the outcome, you can be assured that your Fund's
management will continue to pursue its long-term objective of buying good
quality Ohio bonds to generate high tax-free income for its shareholders.
As always, thank you for your support and investment in the Gradison Ohio
Tax-Free Income Fund.
Very truly yours,
/s/ Stephen C. Dilbone
Stephen C. Dilbone
Executive Vice President and Portfolio Manager
Note: Ranking is based on total return and does not take into account the effect
of sales charges. Past performance is not a guarantee of future results.
1-800-869-5999
[GRAPHIC]
<PAGE> 3
FINANCIAL HIGHLIGHTS (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)(UNAUDITED)
<TABLE>
<CAPTION>
ELEVEN MONTHS FOR THE PERIOD
SIX MONTHS YEAR ENDED JUNE 30, ENDED SEPT. 18, 1992
ENDED --------------------- JUNE 30, 1994 TO
DEC. 31, 1996 1996 1995 (NOTE 1) JULY 31, 1993 (1)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $12.899 $12.773 $12.466 $13.316 $12.500
------- ------- ------- ------- -------
Income from investment operations:
Net investment income .323 .648 .661 .593 .599
Net realized and unrealized gain
(loss) on investments .360 .126 .308 (.743) .813
------- ------- ------- ------- -------
Total income (loss) from investment
operations .683 .774 .969 (.150) 1.412
------- ------- ------- ------- -------
Distributions to shareholders:
Dividends from net investment income (.324) (.648) (.662) (.594) (.596)
Distributions from realized capital gains -- -- -- (.106) --
------- ------- ------- ------- -------
Total distributions to shareholders (.324) (.648) (.662) (.700) (.596)
------- ------- ------- ------- -------
Net asset value at end of period $13.258 $12.899 $12.773 $12.466 $13.316
======= ======= ======= ======= =======
Total return (2) 5.35% 6.17% 8.00% (1.27%) 11.56%
======= ======= ======= ======= =======
Ratios/Supplemental data:
Net assets at end of period (in millions) $ 76.0 $ 70.6 $ 70.0 $ 77.6 $ 69.6
Ratios net of expenses
waived by the adviser:
Ratio of expenses to average net assets .98%(4) .97% .97% .90%(3)(4) .75%(3)(4)
Ratio of net investment income to
average net assets 4.89%(4) 4.99% 5.26% 4.94%(3)(4) 5.25%(3)(4)
Ratios assuming no adviser
waiver of expenses:
Ratio of expenses to average net assets .98%(4) .97% .97% .99%(3)(4) 1.14%(3)(4)
Ratio of net investment income to
average net assets 4.89%(4) 4.99% 5.26% 4.85%(3)(4) 4.86%(3)(4)
Portfolio turnover rate 69.53% 99.68% 80.19% 55.84% 45.04%
- --------------------------------------------------------------------------------
<FN>
(1)No income was earned or expenses incurred from the date the initial shares
were purchased by the adviser (August 21, 1992) through the date of public
offering (September 18, 1992).
(2)Total returns are based upon an initial investment purchased without the
applicable sales charge, represent the actual returns over those periods,
and have not been annualized.
(3)The adviser absorbed expenses of the Fund through waiver of a portion of
the investment advisory fee (Note 2).
(4)Annualized.
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 4
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FACE COUPON
AMOUNT MUNICIPAL BONDS - 90.09% RATE MATURITY VALUE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 545,000 Athens Co., OH Community Mental Health Series 1993 I 5.90% 03/01/09 $ 551,813
335,000 Avon, OH G.O. 6.50 12/01/15 365,988
400,000 Belmont Co., OH G.O. 5.85 12/01/16 408,500
1,075,000 Broadview Heights, OH Industrial Development Revenue 6.25 07/01/13 1,108,594
1,065,000 Brown Co., OH G.O. 6.00 12/01/16 1,076,981
1,100,000 Butler Co., OH Waterworks System 5.13 12/01/21 1,035,375
1,250,000 Cincinnati, OH Urban Redevelopment Improvement G.O. 6.30 12/01/15 1,334,375
2,950,000 Cleveland, OH Certificates of Participation 7.10 07/01/02 3,123,313
750,000 Cleveland, OH Public Power System First Mortgage Revenue 7.00 11/15/16 864,375
1,300,000 Cleveland, OH Urban Renewal Increment Bonds Series 1993 6.75 03/15/18 1,330,875
100,000 Cleveland, OH Urban Renewal Increment Bonds Series 1993 6.625 03/15/11 102,125
500,000 Cuyahoga Co., OH Health Care (Benjamin Rose Institute) 5.30 12/01/25 505,000
1,500,000 Cuyahoga Co., OH Hospital Revenue
(Cleveland Fairview and Lutheran Medical Center) 6.25 08/15/10 1,605,000
1,500,000 Cuyahoga Co., OH Utility Systems Revenue
(The Medical Center Company Project) 5.85 08/15/10 1,552,500
2,185,000 Cuyahoga Co., OH Industrial Development Revenue 6.50 06/01/16 2,307,906
900,000 Erie Co., OH Hospital Facilities Revenue (Firelands Hospital) 6.75 01/01/15 939,375
1,000,000 Fairfield Co., OH City School District G.O. 7.45 12/01/14 1,231,250
655,000 Franklin Co., OH Hospital Revenue
(Worthington Christian Village) 7.00 08/01/16 682,019
1,310,000 Franklin Co., OH Industrial Development Revenue
(Columbus College of Art & Design) 6.00 09/01/13 1,321,462
2,065,000 Franklin, OH Local School District G.O. 5.70 12/01/18 2,072,744
2,300,000 Gateway Economic Development Corporation of Greater
Cleveland Stadium Revenue 6.50 09/15/14 2,251,125
2,020,000 Greater Cincinnati, OH Mortgage Revenue Refunding
(Walnut Towers Project) 6.90 08/01/25 2,126,050
2,000,000 Greater Cleveland, OH Regional Transit 5.60 12/01/11 2,022,500
2,150,000 Hamilton Co., OH Hospital Facilities Revenue
(Deaconess Hospital) 7.00 01/01/12 2,292,438
500,000 Hamilton Co., OH Hospital Facilities Revenue
(Children's Hospital) 6.75 05/15/09 515,935
1,500,000 Lucas Co., OH Hospital (Toledo Hospital) 5.00 11/15/10 1,441,875
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 5
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FACE COUPON
AMOUNT MUNICIPAL BONDS - (CONTINUED) RATE MATURITY VALUE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 385,000 Lucas Northgate Housing Development Corp. Ohio 8.13% 01/01/25 $ 403,288
500,000 Mount Vernon, OH City School District G.O. 7.50 12/01/14 583,750
1,200,000 North Olmstead, OH G.O. 5.00 12/01/16 1,120,500
610,000 North Olmstead, OH G.O. 5.00 12/01/21 561,200
980,000 Ohio Capital Corp. Housing Mortgage Revenue Refunding
(FHA Section 8 Housing) 7.70 01/01/25 1,029,000
920,000 Ohio Capital Corp. Housing Mortgage Revenue Refunding
(FHA Section 8 Housing) 6.50 07/01/24 943,000
1,000,000 OH Capital Corp. Housing (FHA Section 8 Housing) 6.35 07/01/15 1,026,250
1,150,000 Ohio State Air Quality Development Authority Revenue
(Ohio Power) 7.40 08/01/09 1,246,312
2,750,000 Ohio State Air Quality Development Authority Revenue
(Cleveland Electric) 8.00 12/01/13 3,207,188
1,000,000 Ohio State Building Authority (Adult Correctional Building) 6.125 10/01/12 1,032,500
1,915,000 Ohio State Building Authority
(Worker's Compensation Facilities) 4.75 04/01/14 1,721,106
500,000 Ohio State Economic Development Revenue (ABS Industries) 6.00 06/01/04 516,875
815,000 Ohio State Economic Development Revenue
(Ohio Enterprise Bond Fund) 6.50 12/01/09 854,731
630,000 Ohio State Economic Development Revenue
(Wirt Metal Products) 5.60 06/01/02 633,150
1,000,000 Ohio State Higher Educational Facilities Revenue
(Dennison University) 5.25 11/01/16 968,750
1,000,000 Ohio State Water Development Authority Revenue
(Dayton Power) 6.40 08/15/27 1,058,750
1,000,000 Ohio State Water Development Authority Revenue 6.30 09/01/20 1,038,750
1,000,000 South Euclid Lyndhurst, OH City School District G.O. 6.40 12/01/18 1,081,250
1,500,000 Springdale, OH Hospital Facilities Revenue
(Southwestern Ohio Seniors' Services Inc.) 5.88 11/01/12 1,475,625
510,000 Springfield, OH City School District G.O. 5.15 12/01/08 515,738
1,715,000 Springfield, OH City School District G.O. 0.00 12/01/11 769,606
1,710,000 Springfield, OH City School District G.O. 0.00 12/01/12 720,337
1,000,000 Student Loan Funding Corporation, Cincinnati, OH Senior
Subordinated Revenue Bonds Series 1993A 6.15 08/01/10 1,012,500
500,000 Summit Co., OH G.O. 6.90 08/01/12 542,500
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 6
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
FACE COUPON
AMOUNT MUNICIPAL BONDS - (CONTINUED) RATE MATURITY VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1,500,000 Toledo-Lucas Co.,OH Convention Center
Special Lodging Tax Revenue 5.70% 10/01/15 $1,515,000
2,500,000 University of Cincinnati, OH Certificates of Participation 5.13 06/01/24 2,328,125
1,000,000 Upper Arlington, OH G.O. 5.13 12/01/19 951,250
725,000 Warren Co., OH G.O. 6.55 12/01/14 811,093
1,625,000 Westerville, OH G.O. 5.65 12/01/22 1,627,031
1,760,000 Westlake, OH Industrial Development Revenue 6.40 08/01/09 1,837,000
-----------
Total Municipal Bonds
(Amortized Cost $65,772,806) 67,301,648
-----------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS - 9.91%
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
3,700,000 Ohio Municipal Cash Trust * 3.75 - 3,700,000
3,700,000 Midwest Ohio Tax-Free Money Fund * 3.25 - 3,700,000
Total Short Term Investments
(Amortized Cost $7,400,000) 7,400,000
-----------
TOTAL INVESTMENTS, at value
(Amortized Cost $73,172,806) - 100% $74,701,648
-----------
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
* Ohio Municipal Cash Trust and Midwest Ohio Tax-Free Money Fund are money
market mutual funds the investment objective of which is to provide current
income exempt from federal regular and Ohio state income taxes consistent with
stability of principal. Interest is accrued daily and paid to the Fund
monthly. The coupon rate disclosed is the 7-day rate on December 31, 1996.
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 7
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
Assets
<S> <C>
Investments in securities, at value (Note 1) (Cost $73,172,806) $74,701,648
Cash 408,004
Receivable for investments sold 1,270,495
Interest receivable 1,073,177
Receivable for Fund shares sold 39,004
Prepaid expenses and other assets 23,170
-----------
Total Assets 77,515,498
-----------
Liabilities
Payable for investments purchased 1,267,912
Payable for Fund shares redeemed 70,687
Accrued investment advisory fee (Note 2) 31,362
Other accrued expenses payable to adviser (Note 2) 23,091
Other accrued expenses and liabilities 73,088
-----------
Total Liabilities 1,466,140
-----------
Net Assets $76,049,358
===========
Net assets consist of:
Aggregate paid-in capital $74,653,040
Distributions in excess of net investment income (3,127)
Accumulated net realized loss (129,396)
Net unrealized appreciation of investments 1,528,841
-----------
Net Assets $76,049,358
===========
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 5,735,924
===========
Net asset value and redemption price per share (Note 1) $13.26
===========
Maximum offering price per share (Note 1) $13.53
===========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 8
STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1996
------------------------------
<S> <C> <C>
Investment income: $2,212,079
Expenses:
Investment advisory fee (Note 2) $ 188,558
Distribution (Note 2) 94,279
Accounting service fees (Note 2) 24,000
Transfer agency fees (Note 2) 20,221
Professional fees 18,351
Trustees' fees (Note 2) 10,295
Amortization of organization expense (Note 2) 6,605
Printing 3,156
ICI dues 1,762
Other 805
---------
Total expenses 368,032
----------
Net investment income 1,844,047
Net realized and unrealized gain (loss) on investments:
Net realized gain on investments 1,132,523
Net change in unrealized appreciation of investments 883,415
---------
Net realized and unrealized gain on investments 2,015,938
----------
Net increase in net assets resulting from operations $3,859,985
==========
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
7
See accompanying notes to financial statements.
<PAGE> 9
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED JUNE 30,
DECEMBER 31,1996 1996
-------------------------------------
<S> <C> <C>
From operations:
Net investment income $ 1,844,047 $ 3,556,116
Net realized gain on investments 1,132,523 237,361
Net change in unrealized appreciation of investments 883,415 406,577
----------- -----------
Net increase in net assets resulting from operations 3,859,985 4,200,054
----------- -----------
From distributions to shareholders from net investment income (1,848,734) (3,555,785)
----------- -----------
From Fund share transactions:
Proceeds from shares sold 12,793,382 14,042,107
Net asset value of shares issued as distributions 1,484,194 2,869,010
Payments for shares redeemed (10,801,362) (16,976,110)
----------- -----------
Net increase (decrease) in net assets from Fund share transactions 3,476,214 (64,993)
----------- -----------
Total increase in net assets 5,487,465 579,276
Net assets:
Beginning of period 70,561,893 69,982,617
----------- -----------
End of period (including distributions in excess of net investment
income of $3,127 and undistributed net investment income
of $1,560, respectively) (Note 1) $76,049,358 $70,561,893
=========== ===========
Number of Fund shares:
Sold 977,661 1,078,575
Issued as distributions to shareholders 113,111 220,755
Redeemed (825,096) (1,307,968)
----------- -----------
Net increase (decrease) in shares outstanding 265,676 (8,638)
Outstanding at beginning of year 5,470,248 5,478,886
----------- -----------
Outstanding at end of year 5,735,924 5,470,248
=========== ===========
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Gradison - McDonald Municipal Custodian Trust (the "Trust") is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Trust was created under Ohio law by a
Declaration of Trust dated June 11, 1992; it commenced investment operations and
the public offering of its shares on September 18, 1992. There is currently one
series, the Gradison Ohio Tax-Free Income Fund (the "Fund"). The Fund's
investment objective is to provide as high a level of after-tax current income
exempt from Federal income tax and Ohio state personal income tax as is
consistent with preservation of capital by investing primarily in municipal
securities.
The Fund changed its fiscal year end to June 30, effective with the June 30,
1994 Semiannual Report.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles. The preparation of
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amount of income and expenses for that
period. Actual results could differ from those estimates.
SECURITIES VALUATION - Securities are valued in accordance with procedures
established by management and approved by the Board of Trustees by using market
quotations provided by an independent pricing service, prices provided by market
makers, or estimates of market values obtained from yield data relating to
instruments or securities with similar characteristics. Short-term securities
with remaining maturities of less than 60 days are valued at amortized cost
which approximates market value.
SECURITIES TRANSACTIONS - Securities transactions are accounted for on the trade
date (the date the order to buy or sell is executed). Gains and losses on sales
of securities are calculated on the identified cost basis for financial
reporting and tax purposes.
SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS - When the Fund
purchases securities on a when-issued or delayed delivery basis, the transaction
may be entered into a month or more before delivery and payment are made. Such
securities are marked to market daily and begin earning interest on the
settlement date. In the event that the seller fails to deliver the securities,
the Fund could experience a loss to the extent of any appreciation, or a gain to
the extent of any depreciation, in the price of the securities.
INVESTMENT INCOME AND DISTRIBUTIONS TO SHAREHOLDERS - Interest income is accrued
as earned. Interest income includes interest earned, net of premium and original
issue discount, as required by the Internal Revenue Code.
Dividends arising from net investment income are declared daily and paid
monthly. Net realized capital gains, if any, are distributed at least annually.
TAXES - It is the Fund's policy to comply with the provisions of the Internal
Revenue Code available to regulated investment companies. As provided therein,
in any fiscal year in which the Fund so qualifies, and distributes at least 90%
of taxable net income, the Fund will be relieved of federal income tax on the
income distributed. Accordingly, no provision for income taxes has been made.
9
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (UNAUDITED)
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends in
each calendar year, at least 98% of its taxable net investment income (earned
during the calendar year) and 98% of its net realized capital gains, if any
(earned during the twelve months ended October 31), plus undistributed amounts
from prior years.
The tax basis of investments is equal to the amortized cost as shown on the
Statement of Assets and Liabilities.
For both financial reporting and tax purposes, gross unrealized appreciation and
gross unrealized depreciation of investments at December 31, 1996 were
$1,682,834 and $153,993, respectively.
As of June 30, 1996, the Fund had a capital loss carryforward for Federal income
tax purposes of $1,261,919 which can be used to offset future capital gains.
FUND SHARE VALUATION - The net asset value per share is computed by dividing the
net asset value of the Fund (total assets less total liabilities) by the number
of shares outstanding. The maximum offering price per share is equal to the net
asset value per share plus 2.04% of net asset value (or 2% of the offering
price). The offering price is reduced on sales of $250,000 or more. The
redemption price per share is equal to the net asset value per share.
ORGANIZATION EXPENSES - Expenses of organization have been capitalized and are
being amortized on a straight-line basis over 60 months commencing upon the
public offering of the Fund's shares.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Fund's investments are managed, subject to the general supervision and
control of the Trust's Board of Trustees, by McDonald & Company Securities, Inc.
("McDonald"), a registered investment adviser and securities dealer, pursuant to
the terms of an Investment Advisory Agreement (the Agreement). Under the terms
of the Agreement, the Fund pays McDonald a fee computed and accrued daily and
paid monthly based upon the Fund's average daily net assets at the annual rate
of .50%.
The Agreement provides that McDonald bear the costs of salaries and related
expenses of executive officers of the Fund who are necessary for the management
and operations of the Fund. In addition, McDonald bears the costs of preparing,
printing and mailing sales literature and other advertising materials, the cost
of space and equipment rental, and compensates the Trust's trustees who are
affiliated with McDonald. All expenses not specifically assumed by McDonald are
borne by the Fund.
Under the terms of a Transfer Agency, Accounting Services and Administrative
Services Agreement, McDonald provides transfer agent, dividend disbursing,
accounting services and administrative services to the Trust. The Fund pays
McDonald a monthly fee for transfer agency and administrative services at an
annual rate of $26.50 per shareholder non-zero balance account, plus
out-of-pocket costs for statement paper, statement and reply envelopes and reply
postage. The Fund pays McDonald a monthly fee for accounting services based on
the Fund's average daily net assets at an annual rate of .035% on the first $100
million, .025% on the next $100 million and .015% on any amount in excess of
$200 million, with a minimum annual fee of $48,000.
10
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 (UNAUDITED)
In accordance with the terms of a Distribution Service Plan adopted under Rule
12b-1 of the Investment Company Act of 1940, the Fund pays McDonald a service
fee for providing personal services to shareholders of the Fund, including
responding to shareholder inquiries and providing information to shareholders
about their Fund accounts. This fee is computed and paid at an annual rate of
.25% of the Fund's average daily net assets.
During the period ended December 31, 1996, McDonald received sales charges
aggregating $44,757 on sales of shares of the Fund.
The officers of the Trust are also officers of McDonald.
Each trustee of the Trust who is not affiliated with McDonald receives fees from
the Trust for services as a trustee. The amounts of such fees for each trustee
are as follows: (a) an annual fee of $3,500 payable in quarterly installments
and (b) $250 for each Board of Trustees or committee meeting attended.
NOTE 3 - SUMMARY OF INVESTMENT TRANSACTIONS
For the period ended December 31, 1996, purchases and proceeds from the sale of
securities, excluding short-term securities, amounted to $48,892,777 and
$53,240,697, respectively.
NOTE 4 - PORTFOLIO COMPOSITION
The concentration of investments as of December 31, 1996, classified by revenue
source and credit rating, was as follows:
<TABLE>
<CAPTION>
INVESTMENTS BY REVENUE SOURCE INVESTMENTS BY RATING
-------------------------------- -------------------------------
<S> <C> <C> <C>
General Obligations 23.8% S&P/Moody's:
Revenue Bonds: AAA/Aaa 51.5%
Health Care 19.3 AA/Aa 11.2
Utilities 12.0 A/A 15.2
Housing 11.6 BBB/Baa 5.9
Public Facilities 7.0 Unrated (1) 5.8
Industrial Development 4.1 Money Market (2) 10.4
Higher Education 1.4 -----
State Agency 3.7 Total 100.0%
Municipal Lease 7.3 =====
Money Market 9.8
------
Total 100.0%
======
- ---------------------------------------------------------------------------------------
<FN>
(1)Unrated obligations have been determined by the advisor to be of equivalent
quality to the rated securities in which the Fund is permitted to invest.
(2)Money market funds in the Fund's portfolio invest in obligations rated in
one of the two highest short-term rating categories or unrated obligations
of comparable quality.
</TABLE>
See the Fund's Portfolio of Investments for additional information on portfolio
composition.
11
